I saw today that Choice and the Consumer Action Law Centre are running a campaign to make banks more transparent about the penalty fees which we all pay on our accounts. It’s called “Fair go on fees.”
I’m interested. I accidentally paid the rent twice over a few weeks back. In the process, I overdrew our account, and got charged a penalty fee. Oops. I was miffed.
Choice and CALC are questioning the legal basis upon which banks charge penalty fees. It’s fine for banks to charge customers a fee which represents a genuine pre-estimate of the loss caused by a default or breach of contract (sometimes called “liquidated damages”). However, “penalty” clauses, which seek to penalise the customer for the breach or default, are unenforceable by law, whether by principles of unconscionability (see eg. O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170; Esanda Finance Corporation v Plessnig (1989) 166 CLR 131) or pursuant to legislative provisions such as s 32W of the Fair Trading Act 1999 (Vic).
Banks call these charges by all kinds of names: “service fees”, “account overdrawn” or “honour fees”, “credit card late payment fees”, “cheque dishonour fees” and “direct debit dishonour fees”. But it doesn’t matter what they call them – what do they look like in substance? The problem is that it’s hard to know. Banks don’t like disclosing information about penalty fees.
The fact of the matter is that some of the penalty fees don’t seem to bear any relationship to a pre-estimate of loss suffered. And some bank fees are rising far in excess of inflation. Sounds unfair…and illegal.
Another problem is that you are more likely to end up paying these fees if you don’t have much money. If you’re a millionaire, you don’t have to worry if the rent is taken out twice, or if you are charged for someone else’s cheque bouncing, but if you haven’t got stacks of cash in your account, then…whoopsies, there’s a big negative bank balance there. So the vulnerable are penalised.
Choice and CALC argue that:
Banks and other financial institutions should:
- Eliminate inward cheque dishonour fees.
- Introduce systems to provide a greater range of options and real-time information to consumers where there are insufficient funds to make a due payment. These might include simply declining payments without charging a fee, an automated system to notify consumers by email or text message (or perhaps for concession card holders without electronic facilities, by phone), or by automated message via the ATM or EFTPOS system, before the payment is processed.
- Adopt one of the following responses to credit card over-the-limit and account overdrawn honour fees:
- eliminate the fees altogether (we note that credit cards operated successfully in Australia for some 20 years without such fees)
- offer consumers a choice between declining transactions (at no cost), or charging a reasonable fee no more than the actual cost to the bank or say 2-3% of the amount by which the consumer has exceeded the limit/overdrawn their account, whichever is lower.
- Ensure that all other penalty fees are limited to the actual costs incurred by the institution.
Sounds fair enough to me. If my bank had a policy like that in place, then my second mistaken rent payment wouldn’t have gone through. The bank would have contacted me by e-mail, perhaps, to let me know of my mistake. I would have said I didn’t want the second rental payment to go through. And then I wouldn’t have been charged a fee. Simple.
But unfortunately, it doesn’t seem to be about making things easier for the customer. Banks just want their pound of flesh.
After reading that Choice website, I think I might contact my bank about that recent account overdrawn fee, and ask for a refund. The worst they can say is “No”. And the best outcome is that community pressure could force banks to change. Yeah! Power to da people!